Stocks took a sharp nosedive in another choppy day Monday to finish at session lows as investors fled from risky assets following S&P's downgrade of U.S.'s credit rating last week in addition to ongoing economic jitters.

The Dow Jones Industrial Average plunged 634.76 points, or 5.55 percent, to finish at 10,809.85, well-below the psychologically-significant 11,000 mark. The move marks the blue-chip index's biggest point and percent drop since Dec. 1, 2008.

The S&P 500 plummeted 79.92 points, or 6.66 percent, to close at 1,119.46, its lowest close since Sept. 10, 2010.

Nasdaq sank 174.72 points, or 6.90 percent, to end at 2,357.69, its lowest close since October 4, 2010.

August is already on track to be the worst month for the S&P and Nasdaq since Oct. 2008.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, spiked above 40 to touch its highest level since Mar. 2009.

All 10 S&P sectors were lower, led by banks, energy and materials. Financials have plunged more than 20 percent this year.

“Once we took out Friday’s lows, it was like a trapdoor opened,” Art Cashin, director of floor operations at UBS Financial Services told CNBC. “This is very heavy volume again and that tells me that we’ve got people liquidating to raise cash.

Among commodities, U.S. light, sweet crude fell sharply to settle at $81.31 a barrel, the lowest level since Nov. 2010. Gold surged to a record high above $1,700 an ounce as investors flocked to the precious metal as a safe-haven play. JPMorgan said gold prices could soar as much as $2,500 an ounce by year-end on "very high" volatility.

Bank stocks led the market deep into the red, led Bank of America, which sank more than 20 percent. AIG said it planning to sue the bank to recover more than $10 billion in losseson $28 billion of investment in mortgage-backed securities.

Coca-Colaended lower even after Goldman Sachs added the beverage giant to its "conviction buy list." And P&G also finished down after Bernstein upgraded the consumer goods manufacturer to "outperform" from "market perform." The two companies were among the only stocks that struggled to stay higher earlier in the session.